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n l^fOi' 33.
HARVARD
COLLEGE
LIBRARY
THE
FEDERAL RESERVE ACT
"That one Measure won the War"
— John Skbkton WruaiAMs
Comptroller qf the Currency
The
Federal Reserve Act
BY
Hon. ROBERT L. OWEN
UNITBD STATES SKNATOB OF OKLAHOlfA
CHAXBMAM OV TSUC UNITED STATES SENATE OOMMITTBB
ON BANKING AND CX7BBENGT
'^
NEW YORK
THE CENTURY CO.
1919
L
V. ^-
:t C
Copyright, 1919, by Robert L. Oweo
THE FEDERAL
RESERVE ACT
ITS 0BI6IN AND PRINCIPLES
ROBERT L. OWEN
A REMINISCENCE
THE Federal Reserve Act has now
so completely demonstrated its
value, and is so widely approved by
the business men of America and of
the world, that I have yielded to the
suggestion that I should write a short
sketch of its origin and principles,
as a personal reminiscence, having no
time at present to write a full history
of this Act.
The backbone of the Federal Re-
serve Act is:
HI
THE FEDERAL RESERVE ACT
1. A quick available supply of
elastic currency for business men;
2. Issued and controlled by the
Government;
3. Against adequate security, con-
sisting of gold, commodity or com-
mercial bills or acceptances, and U. S.
bonds.
4. Under an interest charge high
enough to prevent inflation by com-
pelling contraction.
In 1890 I had established the First
National Bank of Muskogee, Okla-
homa, was its president for ten years,
and in 1893 witnessed the panic that
took place at that time. This bank,
like very many other banks, lost fifty
per cent of its deposits within as
many days because of the panic,
which frightened people and caused
them to withdraw their funds for
I«l
THE FEDERAL RESERVE ACT
hoarding throughout the United
States and led creditors to strenu-
ously press their debtors for settle-
ment. Money suddenly appreciated
in value, so that property measiured in
money fell in value in some cases to
half of its previously estimated value.
This enabled thousands of cred-
itors to take over the property of
thousands of debtors on a basis that
was ruinous to debtors, causing the
bankruptcy of hundreds of thousands
of people; causing a violent disloca-
tion of business; and throwing out of
employment vast numbers of people
and inflicting injuries which required
years to repair in the industrial and
commercial life of the nation.
Thousands of millions of dollars
were lost and many more thousands
of millions, the normal earnings of a
prosperous, active people, were left
[8]
THE FEDERAL RESERVE ACT
unmade during the next five com-
paratively idle years.
This panic demonstrated the com-
plete instability of the financial
system of America and the hazards
which business men had to meet
under a grossly defective banking
system. A very large part of the
American people believed that the
panic ensued from the industrial de-
pression and shrinkage of values due
to the demonetization of silver, and
a violent agitation arose for the free
and imlimited coinage of silver at
"sixteen to one.'*
The depression was, in fact, world-
wide, and the purchasing power of
many nations was affected. The
McEanley Bill had just passed, ob-
structing imports and therefore ex-
ports; Russia, Rumania, France,
Spain, Portugal, Switzerland, had
[41
THE FEDERAL BESERVE ACT
raised their customs duties, also with
like effect. A severe crisis had arisen
in Australia and in Argentina, and
civil war in Brazil, Chile, and other
South and Central American states —
all of which interfered with the pur-
chasing power of nations. The spirit
of enterprise was prostrated. People
hoarded their money, withdrew their
bank deposits. The currency of
checks and drafts with which men met
their ordinary obligations was dimin-
ished fifty per cent in the United
States, thus diminishing this ephem-
eral currency which at that time
probably averaged a thousand mill-
ion dollars.
The remedy proposed by the
Democrats was the remonetization of
silver; the Republicans refused to
grant this, but craftily and unfairly
expanded the paper currency of the
[5]
THE FEDERAL RESERVE ACT
national banks some five hundred
millions by authorizing the banks to
issue currency against two-per-cent
bonds at a profit to the banks of
approximately one and one-half per
cent per annum on such issue by the
Amendment of the National Bank
Act in 1900. This, of course, was no
remedy, for the currency remained
inelastic altho expanded.
In 1896, at the Democratic Con-
vention at Chicago, as a member of
the Committee on Resolutions, I
strenuously urged a plank pledging
the Democratic Party to protect the
country from financial panics but
failed to obtain support. I advo-
cated, as a resolution before the Com-
mittee on Resolutions, that United
States bonds might, in times of
threatened panic, be made converti-
ble into Treasury notes to serve as
[6]
THE FEDERAL RESERVE ACT
currency as a source of quick supply
of money to offset the withdrawal of
currency for hoarding by frightened
depositors; in effect, elastic cur-
rency.
I failed to convince the Committee
of its wisdom, but made a second
attempt and obtained the support of
Hon. Charles S. Thomas, of Colo-
rado ; Hon. William J. Bryan, of Ne-
braska, and Hon. Allen Thurman,
Jr., of Ohio, and the Committee
adopted the proposed resolution. On
a reconsideration, however, at the
request of Senator George, of Mis-
sissippi, who strenuously opposed it,
the Committee eliminated the pro-
posal from the National Platform
(Messrs. Thomas, Bryan, and Thur-
man having withdrawn their sup-
port) on the plea that it was novel,
untried, and might add to the polit-
[7]
THE FEDERAL RESERVE ACT
ical difficulties of the Pariy in the
coming campaign.
THE ELASTIC CUBRENCY OF EUROPE
AND CANADA
In the summer of 1898 I went to
Europe and studied the question in
London, Paris, and Berlin, talking to
the Governors of the Bank of Eng-
land, the Directors of the Beichsbank
of Berlin, as to their method of pro-
tecting the country from panic, and
in the summer of 1899 I undertook a
propaganda, by written articles and
addresses, showing how England, Grer-
many, France, and Canada protected
their business interests from finan-
cial panic, and pointing out available
remedies for the United States.
I placed some of these proposals
in the Congressional Record of Feb-
ruary 25, 1908 (page 2450), and
[81
THE FEDERAL RESERVE ACT
I)ointed out the means by which the
Bank of England and the Bank of
Germany, the Bank of France and
the Banks of Canada, prevented and
abated panic. From one of these ar-
guments, dated September 26, 1899,
I take the following (p. 2452) :
THE BANE OF ENGLAND
**The Bank of England avoids panics by
the foUowing method:
**This Bank holds the ultimate reserve of
aU the banks of the United Kingdom. The
reserve constitutes the only available cash
reserve against $3,500,000,000 in deposits.
This reserve amounts to a sum ranging from
$130,000,000 to $150,000,000, or about four
per cent, of the deposits net. The Bank of
England has a great advantage in having all
the reserve concentrated in the hand of one
concern charged with the duty (by the force
of public opinion) of maintaining this reserve
above the danger-point.
[»]
THE FEDERAL RESERVE ACT
«
First, The instant this reserve begins
to diminish by gold export the Bank of Eng-
land raises the rate of interest. This tends
to check gold exports, to cause gold im-
ports, and usually brings idle gold from the
Continent. If, in ordinary times, gold is
not attracted it is usually because there is
loanable money on Lombard Street content
with a lower rate. In this event the Bank of
England sells consols for cash and buys
them back on time, which has the effect of
absorbing the loanable money on the street
and thus making the rate effective in at-
tracting gold.
"Second, When local credit is violently
disturbed, and for that reason the rate might
not attract idle capital held by European
bankers, the Bank of England borrows gold
directly, as it did from the Bank of France
when the Baring liquidation was anticipated.
"Third, The Bank of England when panic
threatens lends with great freedom to all
legitimate borrowers, so as to relieve the
pressure and relieve alarm as far as possible.
For example: When Overend, Gumey &
[101
THE FEDERAL BESERVE ACT
Co. failed in 1866, the Bank of England
loaned in one day $^0,000,000 and in one
week $50,000,000 to the depletion of the
cash in the banking department.
"Fourth, When the cash is about ex-
hausted in the banking department and the
closing of the bank becomes imminent, the
administrative government of Great Britain
has always, through the prime minister, by
letter, advised the Bank of England to issue
notes (legal-tender, money) against other
securities than gold (to which the excess issue
was confined by the act of 1844). This was
done in 1847, in 1857, and in 1866, with the
result that the panic in each case was con-
trolled instantly.
''The method of the Bank of England in
raising the rate and borrowing gold is not
adaptable to the United States, for the rea-
son that the element of time and distance
and absence of concentration are substantial
barriers to such devices; bvi the issvs oj
notes against proper securities can be made
easily applicable to the United States by an
act atitiwrizing the United States Treasury to
[111
THE FEDERAL RESERVE ACT
issue Treasury notes against proper security
deposited by the banks in times of stringency
with adequate provision for retiring such notes
when the panic is over.
THE BANK OF GEBMANY
''The Imperial Bank of Grermany is sub*
stantiaUy a state institution. The state gets
all the benefit over and above a low rate of
interest to the stockholders. The bank is
controlled and dominated by the uniform
rate of interest. It has substantially a
monopoly in the issue of paper money. It
carries in its vaults a large amount of gold
and silver, averaging $200,000*000 in gold
and silv^, principally gold. It is protected
against panic, and Grermany is protected
against panic, and the commercial stabihty
of the German Empire secured by giving
this bank the right to issue currency not only
against gold, btU also against the securities
held by the Imperial Bank, consisting of
biUs, due toithin ninety days or less, and se-
cured generally by three and at least by tvx>
[121
THE FEDERAL RESERVE ACT
persons known to be solvent. It may issue even
in excess of these limitations hy paying a tax
to the German Empire of five per cent per
annum on sveh over-issue. The resuU is that
a panic in Germany is impossible^ that the
normal rate of interest is between three and
four per cent, commercial stability is securedy
and their enterprises and manufactures are
making themselves felt throughout the civilized
world.
"The store of gold held by the Imperial
Bank of Germany is protected as in England :
First, By raising the rate.
Second, By favorable assay to foreign
gold, by giving six to eight interest days to
shippers, and other little devices favoring
the shipment of gold to Berlin.
"Third, The powerful influence of the
bank is exerted on the bankers of Berlin to
prevent their shipping gold, which is gen-
erally eflfective.
"Fourth, While the bank does not refuse
to pay gold on demand, persons asking for
gold for shipment feel that When the bank
says *yes* it really means *no.*
113]
THE FEDERAL RESERVE ACT
"The only features of the Grerman legis-
lation apparently available in the United
States are issuing currency against securities
and issuing emergency currency under the
penally of a tax, either one of which would
appear suffiderU to protect the United States
from panic, and both of which should he
adopted.
THE BANK OF VRAKCB
"The Bank of France, which is practically
tinder state control, carries the largest gold
and silver reserve in Europe. Its gold was,
October 13, 1898, $369,000,000; its silver
was $246,000,000, making a total of $615,-
000,000.
"The duty of the governor of this bank is
to watch that Hhe bank performs its duty to
the state and toward the commerce and industry
of ihe country* The banks of the United
States owe a duty to the state and toward the
commerce and industry of the country which
the law should enable and require them to
perfomtm
[1*1
THE FEDERAL RESERVE ACT
''This bank is protected against panic by
the avihority under the law of 1897 to issue
legal-tender notes to the amount of $1,000,-
000,000, of which it has issued $739,000,000.
[The Bank of France thus retained an elastic
margin of $261,000,000 which it could issue
if needed, while the people had in pocket
over $700,000,000 of currency— about $10a
per family, and had no reason to make a run
on the Bank of France.]
•*It hoards its gold and silver not by
raising the rate, but by other devices. First,,
in case of an exchange unfavorable to France,
the Bank of France pays out small gold
coins which by use are slightly under weight
and therefore not suitable for export. In
case of strong demand money brokers buy
up fuU-weight napoleons, atid sell them for
export, and ultimately the bank feels the
withdrawal, but it costs something to take
gold from France in this manner, and the
method opposes a mechanical obstruction to
the withdrawal of gold. Second, if a request
is made of the Bank of France for a large
amount of gold for export the request must
[15]
THE FEDERAL RESERVE ACT
be submitted to the directors, who impose a
charge just at a point which is usually pro-
hibitive. Third, in case of need the Bank of
France can protect its gold hoard by paying
out five-franc silver pieces as legal tender
under the law, and this provision of course
abundantly protects the gold held by the
bank against direct withdrawal.
"There is a vast difference between the
business methods of France and the business
methods of the United States. The French
people by long custom still maintain and do
nearly all their business in cash, and checks
are comparatively little used in commercial
life. The consequence is that the people
have acquired and use a very large amount
of currency in gold and silver, including
$739,000,000 in notes of the Bank of
France.
"The Bank of France not being compelled
to pay gold on demand, though it does do so
for domestic purposes, does not need to raise
the rate of interest to protect its gold. For
this reason, while the bank rate from Feb-
ruary, 1889, to October, 1897, was raised by
THE FEDERAL RESERVE ACT
the Bank of England fifty- three times, and
by the Imperial Bank of Germany twenty-
six times, it was only raised by the Bank of
France once. It is the policy of the Bank of
France to let the French people have money at
the unvarying rate of three per cent, believing
that stability in the rate of interest gives sta-
baity to ccmmerdal enterprise and promotes
the welfare of the * commerce and industry
of the country, which is a chief duty of
the bank.
"The very large surplus in coin of the
Bank of France prevents the loss of confi-
dence which leads to panic, and the bank
has so large a margin of note issue, with dis-
position to extend every reasonable demand,
and France itself has so large a supply of
internal currency in circulation, and the
banking deposits being relatively small, that
there is no danger there of panic in times of
peace.
THE BANE OF CANADA
*'Even the banks of our nearest neighbor,
the Dominion of Canada, have a method
[171
THE FEDERAL RESERVE ACT
^hich expands and contracts the circulation
as much as twenty per cent during the three
months in each year when the crops of forest
and field are moving.
'^ Their notes may be issued to the exteni of
their unimpaired capital paid up.
''The notes form a prior lien on the assets
and are secured by a five-per-cent guaranty
fund. The notes must be redeemed at any
part of the Dominion. No reserve is actu-
ally required by law, but the cash reserve
for redemption has actually averaged in gold
and legal tenders for some years ten per
cent about. Under the law, forty per cent
of the reserves must be in Dominion legal
tenders, which, of course, take care of such
paper to that extent. There is a double
liability of stockholders, a special liability of
directors, elaborate regulations, frequent
printed reports, etc. The striking feature
is that in the history of these banks the
guaranty fund of five per cent for the
security of their notes has never been
depleted, and that this method ofers a
Tnethod which the United States might safely
1181
THE FEDERAL RESERVE ACT
use for expanding the currency**— Cong.
Rec.y p. 2453.
The vital point of the English
system was the issuance of hgaU
tender bank notes by the Bank of
England against securities and gold»
and lending these notes at interest.
This was permitted by a Ministerial
Permit in 1847, 1857, and 1866, with
the result that the panic in London
in each case was instantly con-
trolled {Hist. Bk. Eng.y Andr^adSs,
836, 349, 350).
The German method, to which I
called attention at that time (1899),
consisted in issuing currency against
securities under a penalty of a tax of
five per cent on the issue to the ex-
tent it exceeded its fixed gold secur-
ity, and lending these bank notes at
interest, and I recommended at that
time (1899) the following remedy:
THE FEDERAL BESERVE ACT
THE REMEDY IN THE UNITED STATES
"The remedy for panics in the United
States which suggests itself is:
"First, Establish Postal Savings-Banks^ in
which * timid* depositors with inactive ac-
comits may place their money, because at
present by sudden hoarding in times of
excitement they constitute the greatest dan-
ger to the stability of banks and therefore
to the stability of commerce.
"Second, Issue to such depositors in the
postal savings-banks, in lieu of their de-
posits, a bond, of long term, with liberal
option as to period of redemption by the
Government, bearing a low rate and issued
in small denominations, available for cur-
rency, and make such bonds legal tender.
In this way such deposits would become a
source of strength instead of weakness.
"Third, Authorize the Treasury of the
United States to issue Treasury notes to banks
depositing bonds of a fixed character , Federal^
state, or municipal^ where the standing of svch
bonds is thoroughly assured, leaving the deter-
[20]
THE FEDERAL RESERVE ACT
mination of their character with the Secre-
tary of the Treasury. In this case a charge
should he made against the banks drawing the
notes by a tax in excess of the amount of in-
terest borne by such bonds, so a^ to secure the
prompt redemption and repayment of the
advances.'* — Cong. Rec, February 25, 1908;
p. 2453.
Since this recommendation was
made the principles I then proposed
have been adopted by the United
States :
First, The Postal Savings-Banks
have been estabUshed to absorb the
deposits of timid depositors. Act of
Jime 25, 1910, 36 Stats., 814.
Second, The Aldrich-Vreeland Bill
(May 30, 1908), recognizing the prin-
ciple of
(a) Issuing bank notes,
(b) At interest,
(c) Against adequate securities,
[211
THE FEDERAL BESERVE ACT
although with most serious obstacles,
were placed in the way of getting the
currency (35 Stats., 546).
Third, The Federal Reserve Act of
December 23, 1913 (35 Stats., 251),
was passed, having been engineered
through the United States Senate
under my management as Chairman
of the Committee on Banking and
Ciurency, perfected these principles
by providing
(1) A quick supply of Treasury
Federal Reserve Notes (money);
(2) Issued and controlled by the
Government;
(3) Against adequate security, in-
cluding commodity bills;
(4) Under an interest charge to
prevent inflation; and
(5) Making these notes (money)
easily available at any time or place
in the United States where a business
in]
THE FEDERAL RESERVE ACT
man fairly entitled to credit wanted
currency.
United States bonds may be used
now as a basis of issuing Federal Re-
serve Notes, under an interest charge
fixed by the authorities of the United
States.
I advised the country at that time
(1899)
"That the currency could be quickly and
safely expanded by issuing Treasury notes
against standard securities put up as col-
lateral with the Treasury of the United
States. In this manner the sudden with-
drawal of deposits and the shrinkage of the
narrow margin of currency available to the
banks could be supplemented as above
stated without forcing into liquidation, at
such an unfortunate time, any borrower. An
issue of this kind could be made under proper
safeguards with a sUding scale of interest
against the party drawing Treasury notes
on such collateral and the redemption of such
THE FEDERAL BESERVE ACT
securities when the Government desired
it."— Page 2454, Cong. Rec. (1908).
At that time I made the following
comiment (Ibid., p, 2454):
"It is the duty of the United States to
provide a means by which periodic panics
which shake the American Republic and do
it enormous injury shall be stopped. They
are easy to prevent. The remedy is per-
fectly simple. Provide a means for quickly
expanding the currency when financial fear
threatens the country. Provide a means by
which the timid depositor who rushes on the
banker and demands his money shall not
frighten that banker out of his wits. Provide
a means by which that banker can, upon the
strength of adequate security, obtain a tem-
porary accommodation of money with which
to meet his frightened depositors. In a time
of panic a man cannot borrow money if he
puts up gold dollars as collateral, for the
manifest reason that it is not security, but
currency, which is then required. The banker
[24]
THE FEDERAL RESERVE ACT
has not the currency to Iend» and he cannot
lend that which he has not, no matter what
the security. You cannot then borrow on
Government bonds if you put up $10,000 for
$1,000. It is the duty of the United States
to protect the commercial Ufe of its citizens
against this senseless, unreasoning, destruc-
tive fear that seizes the depositor when he
has been sufficiently hypnotized by the
metropoUtan press with its indiscreet sug-
gestions.''
On February 6, 1900 (Congres-
sional Recordy page 1534), Senator
James K. Jones offered an amend-
ment to the then pending Aldrich
Bill, contemplating the amendment
to the National Bank Act, which I
drew as follows:
"That the Secretary of the Treasury is
hereby directed to have printed and to keep
on hand United States Treasury notes under
a special account to be called the 'emergency
[25]
THE FEDERAL RESERVE ACT
circulation fund/ Such notes shall be full
legal tender. Any citizen of the United
States shall have the right to deposit United
States bonds under rules and regulations to
be prescribed by the Secretary of the Treas-
ury, and to receive from such fund ninety
per cent of the face value of such bonds in
United States Treasury notes, and shall
have the right at any time within twelve
months to redeem such bonds by repaying
in United States Treasury notes the amount
so received by him on account of such bonds,
with interest at the rate of six per cent per
annum on such amount. Failure to redeem
such bonds within the limit of twelve months
shall operate as a forfeiture of such bonds to
the United States, and such bonds shall be
sold to the highest bidder in the open market,
and the balance, after the payment of the
principal of the amount advanced, the in-
terest on the same, and the expenses, shall
be paid to the former owner of such bonds.
Any moneys received from such sale may
be exchanged with other moneys in the
Treasury, so that this fund shall consist
THE FEDERAL RESERVE ACT
alone of Treasury notes. The principal of
all sums so advanced when repaid shall be
returned to the * emergency circulation
fund/ and all interest upon such sums shall
be passed to the credit of the Treasury under
miscellaneous receipts."
Here again was presented the vital
principles of (a) quick money. Gov-
ernment notes (b) against adequate
security, (c) loaned by the Govern-
ment at interest high enough to pre-
vent inflation.
Senator Aldrich, then in charge of
the Bill, declined to accept this
amendment or to improve upon it
(1900).
The panic of 1907 ensued, leaving
American business men and banks
unprotected, and Senator Jones wrote
to me, as follows, calling my atten-
tion to the amendment which he
had proposed and suggesting that
I«7]
THE FEDERAL RESERVE ACT
it would have prevented the panic
of 1907, if it had been adopted:
<«
(Law Offices of James K. Jones and
James K. Jones, Jr., 621, 622 Colorado
Building. Telephone Main 638)
"Washington, D. C, February 11, 1908.
"Hon. Robert L. Owen,
United States Senate,
City.
"Dear Senator:
" I inclose a copy of tne amendment which
I offered to the financial bill on February 6»
1900. — Congressional Recordy p. 1534.
"You will, of course, recall the fact that
you prepared the original draft of this pro-
posed amendment, which I mtroduced in
almost, if not in exactly, the form submitted
by you. I think you will find the debate on
that bill at that time quite interesting.
"If that amendment had been adopted at
that time and it had been written in the law,
it would, in my opinion, have prevented the
late panic.
I«8]
THE FEDERAL RESERVE ACT
*'I am glad to see that at last the principle
of emergency currency properly secured is
recognized and that the Committee on
Finance of the Senate indorse it.
** Congratulating you on your early con^
nection with this idea, I am
Very sincerely yours,
*' James K. Jones/'
—Cong. Record, Feb. 26, 1908, p. 24«9.
THE PANIC OF 1907
After the panic of 1907 occurred
Senator Aldrich brought in a pro-
posed remedy, afterward known as
the " Aldrich - Vreeland Law," and
in his address to the Senate Febru-
ary 10, 1908 {Cong. Rec, p, 1755), he
pointed out that the panic
** Was the most acute and disastrous in its
immediate consequences of any which has
occurred in the histoiy of the country/*
''That 'the shrinkage in values of securi-
ties and property, and the losses from injury
to business resulting from and incident to
THE FEDERAL RESERVE ACT
the crisis, amounted to thousands of millions
of dollars';
"That *a complete disruption of the ex-
changes between cities and communities
throughout the country took place';
"That Mt is impossible to estimate the
losses which were inflicted by this suspension
of payments by the banks, and the resultant
interruptions of exchanges/ etc., etc.;
"That ' there was financial embarrassment
on every hand, and an impossibility of secur-
ing the proper funds to move crops or to carry
on the ordinary business of the country';
"That *the suspension or disarrangement
of business operations threw thousands of
men out of employment and reduced the
wages of the employed';
"That *if the business interests of the
country are left defenseless through the in*
action of Congress, the most serious conse«
quences may follow.'"
Senator Aldrich, as Chairman of
the Committee on Finance, there-
upon urged the passage of Senate
[80]
THE FEDERAL RESERVE ACT
Bill S023, to amend the National
Banking laws. This bill provided for
the establishment of National Cur-
rency Associations, and it was ap-
proved May 30, 1908 (35th Stats.,
546).
These National Currency Associa-
tions, to be composed of not less than
ten national banks in number, and
each association having a capital and
surplus of at least five millions of
dollars, were to be authorized as cor-
porate bodies. They were authorized
to expand the circulation by the ap-
proval of the Comptroller of the Cur-
rency to an amount m)t exceeding
seventy-five per cent of the cash
value of the securities or commercial
paper deposited under the direction
and control of the Secretary of the
Treasury. The notes were to be bank
notes, and many restrictions were
[SI]
THE FEDERAL RESERVE ACT
placed upon the issuance of these
notes. For instance:
**No association should be authorized to
issue circulative notes based on commercial
paper in excess of thirty per cent of it sun-
impaired capital and surplus, and
''The commercial paper was to include
only notes representing actual conmiercial
transactions, with two responsible names,
and not exceeding four months to run. Such
notes should not exceed ninety per cent
market value of qualified bonds, and
''The total amount of circulating notes
outstanding of any national banking asso-
ciation, including notes secured by United
States bonds, as provided by law, and notes
secured otherwise than by deposit of such
bonds, shall not at any time exceed the
amount of its unimpaired capital and sur-
plus."
The whole system was under the
further sweeping provision that un-
der no circumstances should the gross
amount of circulative notes issued by
[321
THE FEDERAL RESERVE ACT
all the banks in the United States^
under this Act, exceed five hundred
million dollars.
It was further provided that the
notes should be distributed as equi-
tably as practicable between the
various sections of the country. A
very impractical provision in time of
panic.
Furthermore, the national banking
associations issuing such circulating
notes, proposed by the Act, were re-
quired to pay for the first month a
tax of five per cent per annum upon
such notes in circulation, with one
per cent per amium for each month
thereafter until a tax of ten per cent
per annum was reached.
The Bill provided for the with-
drawal of national bank notes based
upon bonds to the extent of nine
million dollars a month, and a can-
[SSI
THP FEDERAL RESERVE ACT
cellation of the authorized new cir-
culative notes.
OBJECTIONS TO THE ALDRICH-VREE-
LAND BILL
I strongly objected on the floor of
the Senate (February 25, 1908) to the
various obstructions in the way of
quick - circulating notes, on the
ground that the method was unrea-
sonable, cumbersome, and defeated
the object of preventing panic, al-
though useful in abating a panic after
its occurrence.
"That these notes were pretended to be
national bank notes, but in reality were
United States notes because practically guar-
anteed by the United States.
"Because it would take six thousand six
hundred different plates to print these notes
[a different note for each bank] instead of
one plate.
" Because the high rate of interest would
THE FEDERAL RESERVE ACT
make these notes available only after a panic
had occurred. No bank in sound condition
and free from the fear of a panic would take
the trouble to call a meeting of the directors
of a national currency association and make
the appeal necessary to obtain these circu-
lating notes and put up their securities on a
charge of five per cent up to ten per cent
for the use of such notes, unless a panic had
already taken place."
I called the attention of Senator
Aldrieh to the interesting fact that
the issuance of circulating notes
based upon securities at a reasonable
rate of interest had been proposed on
February 6, 1900, in an amendment
which I had drawn and which was
offered by Senator James K. Jones
and which was rejected by Mr.
Aldrieh, and that his refusal of this
proposal had left the country impro-
tected against the panic of 1907. I
pointed out also that the only value
THE FEDERAL RESERVE ACT
of his present proposal (Sen. 3023),
in February, 1908, was that it did
provide circulating notes against se-
curity under an interest charge high
enough to prevent inflation, but that
it was insufficient in amount, because
the panic of 1893 had required a very
much larger sum of currency, clearing-
house certificates, cashiers' checks,
pay checks, etc., over $1,000,000,000,
to meet the demand for currency, and
that his Bill was defective just to the
extent that it proposed obstructions
to the free delivery of such circulating
notes, and to the ease with which peo-
ple might obtain them.
After I had made this indictment
of the neglect of Senator Aldrich to
adopt these principles in 1900, 1 said
(Cong. Rec.y p. 2429) :
** I pause to say that, if any Senator [look-
ing at Mr. Aldrich] wishes to interrupt me
[86]
THE FEDERAL RESERVE ACT
at any time, it will not disconcert me in the
least.
*'The Senator from Rhode Island would
have saved his country and millions of its
people .the enormous shrinkage in values of
securities and property and the loss from
injury to business resulting from and inci-
dental to the crisis, amounting, as he himself
now declares, to 'thousands of millions of
dollars.'
"He would have prevented *the suspen-
sion or disarrangement of business opera-
tions which threw thousands of men out of
employment and reduced the wages of those
who were still employed.*
"He would have prevented the fear and
distrust which has now paralyzed and makes
unproductive the energies of hundreds of
thousands of men and holds idle many
thousands of factories and business en-
terprises."
Senator Aldrich did not interrupt
me and made no defense against this
charge.
[37]
THE FEDERAL RESERVE ACT
I pointed out at that time (page
2432) :
1. That the committee bill limited
the issue to five hxmdred million dol-
lars of emergency notes, which had
been demonstrated by the Chainoan
himself to be insuflEicient in volume,
and imposed restrictions which would
prevent any but a fractional part of
that issue, and in addition closed
every door to relief until after the
Secretary of the Treasury should
have declared an emergency, which I
insisted should be left to the bank
makmg application and not to the
Treasury, because a bank may be put
in a panic within twenty-four hours,
and nobody can know this as well as
the bank oflEicers.
2. I objected to six thousand six
himdred varieties of national bank
notes when these notes should be
188]
THE FEDERAL RESERVE ACT
United States Treasury notes in one
form.
3. I objected that the national
banks were not permitted to take
advantage of the Bill unless they
came within certain rigidly described
classes, thus limiting the efficiency of
the proposed remedy and preventing
its full and free exercise. For exam-
ple:
4. No national bank which has less
circulating notes outstanding than
forty per cent of its capital was per-
mitted to have the benefit of the Act.
5. No national bank with a siuplus
of less than twenty per cent was per-
mitted to have relief.
6. No national bank in any event
was to have any relief in emergency
notes exceeding a gross amount of
its outstanding notes in excess of the
capital and surplus of such bank.
IS9]
THE FEDERAL BESERVE ACT
7. Even under these vexatious lim-
itations the national banks within the
classes described were only permitted
to have reUef of a limited amount of
these emergency notes apportioned
off to each of the several states re^
gardless of the national exigency.
8. Moreover, no state bank, no
trust company, no savings-bank, was
permitted to have the benefit of this
remedy against panic, although these
institutions at that time held two-
thirds of the banking capital of the
United States, and had less than four
per cent currency reserve, and were
therefore to that extent dangerous to
our financial stability.
All these objections, made in 1908,
were remedied in the Federal Re-
serve Act in 1913.
I demanded (page 2435) that the
volimie of emergency notes should
[40]
THE FEDERAL RESERVE ACT
not be limited except by the actual
requirements of our commerce.
This has been accomplished.
I demanded that these notes should
not be national bank notes, but
should be Treasury notes based upon
the securities and the credit of
the banks, but in addition (being
Treasury notes) supported by the
taxing power of the people of the
United States.
This was accomplished in the Fed-
eral Reserve Act.
I advocated at that time the retire-
ment of the bond-secured national
bank notes and the issuance in lieu
thereof of Treasury notes payable in
gold (page 2436).
The Federal Reserve Act provided
the gradual retirement of the bonds
and national bank notes by substi-
tuting Federal Reserve bank notes.
[41]
THE FEDERAL RESERVE ACT
In 1908 I urged also the issuance
of Treasury notes in lieu of gold
certificates, and tbat the gold thus
released should be added to the
reserve fund in the division of
redemption. This has been accom-
plished, imder the Federal Reserve
Act. Federal Reserve notes are now
issued in lieu of gold, and such gold
to the extent of many hundreds of
millions of dollars has passed into the
hands of the Federal Reserve banks
in the custody of Federal Reserve
agents and made available for this
very purpose (page 2436).
The Committee (Aldrich) Bill
(1908) permitted railroad bonds to be
used as a basis of the emergency cir-
culative notes, and did not provide
that privilege for United States
bonds. Against this I vigorously pro-
tested (page 2441). The Federal Ren
THE FEDERAL RESERVE ACT
serve Act corrected this by provid-
ing that United States bonds might
be used as a basis for obtaining
Federal Reserve notes, and does not
permit railroad bonds to be so used.
I further insisted in 1908 upon a
readjustment of the cash reserves of
the banks so that they would be real
reserves and actually available, as
they were not under the then existing
statute (page 2444). This was cor-
rected in the Federal Reserve Act.
I stated at that time the principles
which should govern the statutes on
banking, as follows :
^'It should always be kept in mind that it
is not the welfare of the bank, nor the wel-
fare of the depositor whidi is the main
object to be attained, but it is the preven-
tion of panic, the protection of our com-
merce, the stability of business conditions,
and the maintenance in active operation of
[48]
THE FEDERAL BESERVE ACT
the productive energies of the nation which
is the question of vital importance/*
The Aldrich-Vreeland Act did not
accomplish this result, yet it did have
the great virtue of recognizing the
broad principle which I had advo-
cated in 1899 of
Making elastic currency available.
On adequate security;
On an interest charge to prevent
inflation.
The vital defects of the Aldrich-
Vreeland Emergency Currency Act
consisted in putting the system in
the control of the banks and making
the ciurency difficult of access and
e3q>ensive.
AMENDMENTS TO ALDRICH-VREELAND
ACT, 1913 AND 1914
On December 23, 1913, the Federal
Reserve Act, Section 27, extended
[44]
THE FEDERAL RESERVE ACT
the Aldrich-Vreeland Act, subject to
the modifications of the Federal Re-
serve Act, to June 30, 1915, and with
the important amendment that ""the
tax on circulating notes, secured
otherwise than by bonds of the
United States, shall pay for the first
three months a tax of three per centum
per annum upon the average amount
of such of their notes in circulation as
are based upon the deposit of such
securities, and afterwards an addi-
tional tax rate of one-half of one per
centum per anmmi for each month
unUl a tax of ^ per centum per an-
niun is reached, and thereafter such
tax of six per centum per annum upon
the average amount of such notes/*
I had reconunended a lower rate of
interest on February 25, 1908, as a
substitute for the Aldrich Bill, put-
ting the interest at six per cent for
[45]
THE FEDEBAL RESERVE ACT
the first twelve months {Cong. Rec.^
page 2445), and a lower rate was
provided in the Federal Reserve Act
Amendment of from 3 per cent to
6 per cent.
On July 31, 1914, when the Euro-
pean war broke out, I offered an
amendment to the Aldrich-Vreeland
Act which was adopted that day by
unanimous consent, as follows:
"Provided further that whenever in his
judgment he may deem it desirable the Sec-
retary of the Treasury shall have power to
eiispend the limiiations imposed by Section 1
and Section 3 of the Act referred to in this
Section, which prescribed that such addi-
tional circulation secured otherwise than by
bonds of the United States shall be issued
only to national banks having circulating
notes outstanding secured by the deposit of
bonds of the United States to an amount not
less than forty per cent of the capital stock
of such banks, and may permit national
146]
THE FEDERAL RESERVE ACT
banks during the period for which such pro-
visions are suspended to issue additional cir-
culation under the terms and conditions of
the Act referred to" (page 13067).
This amendment was in accord-
ance with the recommendations which
I had made on February 25, 1908, and
which were not accepted at that time.
In the House of Representatives a
further amendment was offered and
adopted to authorize the Secretary
** To suspend also the conditions and limita-
tions of Section 6 of said Act, — ^that is, to
suspend the provision that the total amount of
circvlaiing notes outstanding secured by
United States bonds, as now provided by
law, and notes secured otherwise than by
deposit of such bonds, shall not at any time
exceed the amount of its unimpaired capital
and surplus and to authorize the suspension
of the limitation of the circulating notes or
emergency notes to Jive hundred million dot-
Uirsr
1471
THE FEDERAL RESERVE ACT
Both of these conditions, which I
had objected to on February 25,
1908 (pages 2433 and 2435), were in
this way corrected.
The House added a further provi-
sion authorizing the Secretary of the
Treasury to extend the benefits of the
Act to all qualified state banks and
trust companies which have joined
the Federal Reserve System or which
may contract to join within fif-
teen days after the passage of the
Act.
The demand for recognizing the
state banks and trust companies
in the issuance of emergency notes I
had made on February 25, 1908
{Cong. Rec.y page 2436), and it was
here provided to this extent.
The House amended the bill, as
stated, on August 4, 1914, and the
Senate immediately accepted thcr
[48]
THE FEDERAL BESEBVE ACT
House amendments with a proviso
that national banks should not issue
more notes than 125 per cent of cap-
ital and surplus.
I had taken this matter up with
the Treasury Department on Friday
morning, July 31, 1914, agreed upon
the form of amendment with the
Treasury Department, and called
the Banking and Currency Conmiit-
tee together and obtained a imani-
mous report in favor of the amend-
ment, and the bill passed unani-
mously through both Houses with the
amendments above indicated.
The amendments in the House
were brought about by numerous
conferences between the Committees
of the Senate and the House of Rep-
resentatives, and all these amend-
ments were actively urged by such
distinguished bankers as Frank A.
[49]
THE FEDERAL RESERVE ACT
Vanderlip, president of National City
Bank, New York, and Chas. C.
Glover, president Riggs National
Bank, Washington, and others.
The Treasury immediately sent
out a very large amount of circulat-
ing notes imder the Aldrich-Vreeland
Act, and a total issue was made
amounting to $386,444,^15, all of
which was retired by July 1st, 1915
(except $200,000, later retired), which
served to protect the coimtry in a very
important way against the threat of
a panic due to the European war.
THE MONETARY COMMISSION PLAN,
1912
The Aldrich-Vreeland Act, ap-
proved May 30, 1908, estabUshed the
National Monetary Commission of
nine Senators and nine members of
the House, to inquire into and report
1501
THE FEDERAL RESERVE ACT
to Congress at the earliest practicable
date,
"What changes are necessary or
desirable in the Monetary System of
the United States, or in the laws re-
lating to banking and currency/' etc.
On January 19, 191S, the National
Monetary Commission made its re-
port to Congress with a proposed bill
to incorporate the "National Re-
serve Association of the United
States" (Senate Doc. 243, 62d, 2d)-
This bill provided for the "Na-
tional Reserve Association" with a
capital of one hundred millions paid
in, and two hundred milhons to be
subscribed before commencing busi-
ness, the total capital to be equal to
twenty per cent, of the capital of the
member banJcs, its head office in
Washington. It had the usual cor-
porate powers.
1511
THE FEDERAL RESERVE ACT
National banks were required to
subscribe to this stock. Yet the
bankers who approved this bill in-
sisted afterwards that national banks
should rvat be required to subscribe to
the Government-controlled Federal
Eeserve Banks. The bill provided
an orpnization committee composed
of the Secretary of the Treasury,
the Secretary of Commerce and
Labor, and the Comptroller of the
Currency. The Association was to
have fifteen branches in as many dis-
tricts.
1. The National Reserve Associa-
tion was to be under the control of a
board of directors, consisting of fif-
teen directors to be elected, one by
the board of directors of each branch
of the National Reserve Association;
2. Fifteen additional directors
elected in the same way to represent
[52]
THE FEDERAL RESERVE ACT
the agricultural, conunercial, indus-
trial, and other interests of the dis-
tricts.
3. Nine additional directors were
to be elected by a voting representa-
tive chosen by the board of directors
of the various branches, each of
whom should cast a number of votes
equal to the number of shares in the
National Reserve Association held in
the branch which he represented.
4. There were to be seven ex-
officio members of the board of direc-
tors, namely: the governor of the
National Reserve Association, who
should be Chairman of the Board;
two deputy governors of the National
Reserve Association, the Secretary
of the Treasury, the Secretary of
Agriculture, the Secretary of Com-
merce and Labor, and the Comp-
troller of the Ciurency.
TEE FEDERAL RESERVE ACT
The executive officers were to con-
sist of the governor, two deputy gov-
ernors, a secretary, and such sub-
ordinate officers as might be provided
for in the by-laws.
The effect of this "plan was to place
absolutely in the hands of the banks
the control of the reserve system. And
to fix this stupendous power in the
hands of five men in New York City
representing a Board of forty-six per-
sons, forty-two of whom were to be
chosen by the banks and four of
whom were to represent the Gov-
ernment of the United States. The
Bill proposed to exempt the Reserve
Association and the local associations
from local and state taxations ex-
cept as to real estate. In each branch
association the manager and deputy
manager were to be appointed from
the districts by the governor of the
[54]
THE FEDERAL RESERVE ACT
Association with the approval of the
executive oommittee and the board of
directors of the branch, and sub-
ject to removal at any time by the
governor with the approval of the
executive committee of the National
Reserve Association. The local asso-
ciations were authorized, for a com-
mission, to guarantee comimercial
paper for rediscount at the branches
of the National Reserve Association.
It was provided that any Igcal as-
sociation might function as a clear-'
ing-house by a vote of three-fourths
of its members with the approval of
the National Reserve Association.
The Federal Reserve Banks were
intended by the Federal Reserve Act
to function as clearing houises and
clear checks at par, hut by the pres-
ent Federal Reserve Board they only
serve as collection agencies of checks
I«5]
THE FEDERAL RESEBVE ACT
and clear very lamely. Some day
this will be corrected and the Act
administered more advantageously
for business men and depositors.
It was proposed that the National
Reserve Association should he the
principal fiscal agent of the United
States, and that the Government
should thereupon deposit all its gen-
eral funds with said Association and
its branches, and thereafter all re-
ceipts of the Government, exclusive
of trust funds, should be deposited
with said Association and its
branches, and all disbursements by
the Government should be made
through said Association and its
branches.
Section 24 provided that the Gov-
enmxent of the United States and the
banks holding stock in the National
Reserve Association should be the
[66]
THE FEDERAL RESERVE ACT
only depositors in said Assoda-
tion.
Section 25 provided tibiat the Asso-
ciation should pay no interest on
deposits.
Section 26 authorized the Associa-
tion to rediscount for its member
banks commercial bills, but not on
bills based on investment securities.
Discoimted bills should not have a
maturity of more than twenty-eight
days, nor exceed the capital of the
bank for which rediscoimts were
made, nor exceed ten per cent of
the unimpaired capital of the mem-
ber bank. Bills up to four months
were approved for discoimt with the
guarantee of the local association.
The National Association was au-
thorized, with the approval of the
Secretary of the Treasiuy, to dis-
coimt the obligation of a member
[57]
THE FEDERAL RESERVE ACT
bank endorsed by its local asso-
ciation, provided the loan did
not exceed three - fourths of the
actual value of collateral securities
pledged.
Section 30 provided that the Asso-
ciation should have the authority to
fix its rate of discoimt throughout
the United States.
Section 31 authorized national
banks to issue acceptances not ex-
ceeding four months properly se-
cured, based on commercial transac-
tions, the total acceptances not to
exceed one-half of the capital and
siuplus of the accepting bank*
Section 32 authorized the Reserve
Association to purchase such ac-
ceptances with not exceeding ninety
days to nm.
Sections 33 and 34 authorized the
Association to invest in Government
[581
THE FEDERAL RESERVE ACT
bonds and Treasury notes and deal
in gold coin and bullion.
Section 35 authorized the National
Reserve Association to purchase and
sell commercial paper o^ bills of ex-
change rising out ot commercial
transactions and payable in foreign
countries, provided the bills do not
exceed ninety days, have two re-
sponsible signatures, the last a sub-
scribing bank.
Section 36 authorized the Reserve
Association to open and maintain
banking accounts in foreign countries
and establish agencies in foreign
countries for the purpose of handling
foreign bills and checks. The mem-
ber banks were authorized to count
their deposits with the Reserve Asso-
ciation as legal reserves. The Re-
serve requirements were lowered by
making no reserve necessary on de-
THE FEDERAL RESERVE ACT
posits maturing more than thirty
days from date.
Section 40 authorized national
banks to loan not more than thirty
per cent of *heir time deposits upon
real estate, but not to exceed fifty
per cent of the actual value of the
real property, but excluding reserve
agents from this privilege.
Section 41 provided that the Na-
tional Reserve Association should
cover all demand liabilities, including
deposits and circulating notes to the
extent of fifty per cent in gold or
lawful money, with a proviso that
whenever and so long as such reserve
should fall and remain below fifty
per cent the Reserve Association
should pay a special tax upon the
deficiency of reserve at a rate increas-
ing in proportion to such deficiency,
as follows:
THE FEDERAL RESERVE ACT
For each two and a half per cent below
the required reserve a tax shall be levied of
one and a half per cent per annum, and this
elasticity ceased when the gold reserve fell
to one-third of the outstanding notes.
Yet the Bank of England has been
compelled by war to drop to eighteen
per cent reserve against outstanding
Bank of England notes and a lower
per cent against deposits.
In computing the demand liabili-
ties of the National Reserve Associa-
tion a sum equal to one-half of the
amount of United States bonds held
by the Association which have been
purchased from national banks, and
which have previously been deposited
by such banks to secure their circu-
lating notes, should be deducted from
the amount of such liabilities.
Section 48 forbade national banks
to reissue any further national bank
notes, and
Section 49 gave the National Re-
[61]
THE FEDERAL RESERVE ACT
serve Association the right to ofifer to
purchase at par and accrued interest
the two-per-cent bonds held by sub-
scribing national banks and deposited
to secure their circulating notes, the
National Reserve Association to take
over the bonds and assume the re-
sponsibility for the redemption of
bank notes. The National Reserve
Association was thereupon author-
ized to issue, —
"Its own notes as the outstanding
notes secured by such bonds," and
"May issue further notes from time to
time to meet business requirements, being
the policy of the United States to retire as
rapidly as possible, consistent with the pub-
lic interests, bond-secured circulation, and
to substitute therefor notes of the National
Reserve Association of a character and se-
cured and redeemed in the manner provided
for in this Act."
Section 50 required the note issues
to be covered by legal reserves of
from thirty-three and one-third to
[62]
THE FEDERAL RESERVE ACT
fifty per cent, and by notes or bills
of exchange arising out of connner-
cial transactions or obligations of the
United States.
Section 51 provided that any notes
of the National Reserve Association
in circulation at any time in excess of
nine hundred million dollars which
are not covered by an equal amount
of lawful money, gold bullion, or for-
eign gold coin held by said Associa-
tion, shall pay a special tax at the
rate of one and one-half per cent per
annum, and any notes in excess of
one billion two hundred million dol-
lars, not so covered, shall pay a spe-
cial tax at the rate of five per cent
per annum, provided that in com-
puting said amounts the aggregate
amount of any national bank notes
then outstanding shall be included.
The notes of the Reserve Assoda-
THE FEDERAL RESERVE ACT
turn were to be available for member
banks as reserves.
The notes were to be received at
par in payment of all taxes, exer-
cises, and otiher dues to tihe United
States, and for all salaries and other
debts and demands owing by the
United States to individuals, firms,
corporations, or associations, except
obligations of the Government spe-
cifically payable in gold, and for all
debts due from or by one bank or
trust company to another, and for
all obligations due to any bank or
trust company; in other words, le-
gal TENDER, except for specific gold
contracts of the United States.
Section 55 directed the Secretary of
the Treasury to exchange the two-
per-cent bonds of the United States
bearing a circulation privilege for
three-per-cent bonds without the
[64]
THE FEDERAL RESERVE ACT
circulation privilege, payable fifty
years from date, and the National
Reserve Association was required to
hold the three-per-cent bonds during
the period of its corporate existence,
with the right to sell at the option of
the Treasury, after five years, not
more than fifty million dollars of such
bonds annually, the United States
reserving the right to pay off such
bonds at any time.
Section 56 required the National
Reserve Association to pay the Gov-
ernment a special franchise tax of
one and a half per cent annually
during the period of its charter upon
an amount equal to the par value of
such United States bonds transferred
to it by the subscribing bank.
The effect of this provision was
that the United States would pay
three per cent and get back one and
[65]
THE FEDERAL RESERVE ACT
a half per cent, paying one and a
half per cent interest net annually
for the exchange of its credit for the
credit of the Association, a net annual
profit on $900,000,000 of $13,500,000
to the bank at the expense of the United
States.
Section 57 authorized banking cor-
porations to be organized for the trans^
action of foreign banking business.
When this Act was presented to
the Congress of the United States an
active propaganda ensued through-
out the United States to obtain for it
the public approval; meetings were
held in various cities of the United
States under the patronage of the
American Bankers' Association. Sen-
ator Aldrich made many public ad-
dresses in its favor, but Congress
took no action because there was a
very resolute opposition in Congress
THE FEDERAL RESERVE ACT
toward turning over the entire con-
trol of the credit system of the United
States to private hands and prac-
tically uncontrolled by the National
Government. The most serious ob-
jections to the Aldrich Bill were these :
1. The entire banking powers of
the United States were to be concen-
trated in the executive oflScers (pri-
vate persons), who would be located
in New York City, and this power
would be sufficient to coerce every
member bank and large business in
America.
It was desirable, on the contrary,
that the control of the system should
be in the hands of the Government
of the United States, and, second,
that the reserve centers should be
distributed and not concentrated in
one city where a small clique could
control the system.
THE FEDERAL BESERVE ACT
2. So long as the Reserve Associa-
tion issued its own bank notes it fol-
lowed as a corollary that the Associa-
tion would control its own notes as
it saw fit, and thereby could control
the currency of the country and
thereby control the credits of the
coxintry regardless of the will of the
American people, since the Govern-
ment under the proposed would not
have been in control. The measure,
however, did have some valuable
features; it did provide for the
gradual retirement of the national
bank notes.
It did provide for acceptances, do-
mestic and foreign.
It did provide for a currency which
was elastic and would accommodate
itself to the demands of commerce
(always provided the gentlemen in
control permitted it) .
[68]
THE FEDERAL RESERVE ACT
But, it was a Central AU-ControUing
Bank in Private Hands.
THE DEMOCRATIC CURRENCY REFORM
OF 1913
In the fall of 1912 Hon. Woodrow
Wilson was elected President of the
United States upon a platform oppos-
ing a central bank, favoring the tak-
ing of the banking business out of
the control of the so-called "money-
trust" or "credit trust" whose ex-
istence had been demonstrated by
the Pujo investigation, and declaring
the doctrine
''Banks exist for the accommodation of
the public and not for the control of business.
All legislation on the subject of banking and
currency should have for its purpose the
securing of these acconmiodations on terms
of absolute security to the public and have
complete protection from the misuse of the
[69]
THE FEDERAL RESERVE ACT
power that wealth gives to those who pos-
sess it."
As I had given this matter careful
study in 1898 and had called the at-
tention of the country to the methods
by which Great Britain, Germany,
France, and other countries protected
their business people against finan-
cial panic and by which they stabil-
ized business credits, and had elabo-
rately set these principles forth in the
Senate in February, 1908, I desired
to be able to write these principles
in the statutes of the United States,
and I therefore initiated a deter-
mined movement to reorganize the
Democratic party control of the
United States Senate and among
other things to have myself put at
the head of a Committee on Banking
and Currency, in order that I might
have the opportunity of framing the
[70]
THE FEDERAL RESERVE ACT
Federal Reserve Act along sound
lines free from selfish interests.
The Senate was reorganized ac-
cordingly; there was formed a Com-
mittee on Committees, of which I
became a member, the Conomittee
on Finance was divided, the Com-
mittee on Banking and Currency
established, I was made Chairman
of this Committee, and immediately
organized a sub-Committee to study
this question in co-operation with
the Committee of the House, which
was giving attention to this question
at the same time.
During the preceding winter
(1912-13), Hon. Carter Glass, Chair-
man of the Conunittee on Banking
and Ciurency of the House of Rep-
resentatives, had given this matter
vigorous attention, and had made a
preliminary draft which he had sub-
[71]
THE FEDERAL RESERVE ACT
mitted to President-elect Wilson. I
was advised that this draft had met
with the tentative approval of the
President. Mr. Glass gave me a copy
of his draft and his notes thereon
which I have preserved. I, too, made
a draft incorporating the principles
I had advanced in 1908, and these
two proposals became the basis of
discussion in framing the Federal
Reserve Bill which finally became the
Federal Reserve Act.
The Glass tentative draft avoided
the establishment of a central bank
with branches, and provided twenty
Federal Reserve district banks under
control, however, of a Federal Re-
serve Board, with forty out of
FORTY-THREE MEMBERS CHOSEN BY
THE BANKS,
Section 10 of this draft provided
for a Federal Reserve Board, con-
[72]
THE FEDERAL RESERVE ACT
sisting of forty members chosen by
the member banks and their stock-
holders, and the Secretary of the
Treasury, the Comptroller of the
Currency, and the Attorney-General
of the United States. Mr. Glass,
however, proposed to amend this
draft to alter this provision so that
the Federal Reserve Board should be
selected by the directors of the Na-
tional Reserve banks, the directors of
the Federal Reserve banks being
selected by the member banks and
their shareholders, either directly or
indirectly.
I was strongly opposed to either
provision because it would not give
to the United States control of the
system. In effect this control of the
system I regarded as practically the
same as the Aldrich Bill, which
would have put the management of
173]
THE FEDERAL RESERVE ACT
the sjsrstem in the hands of persons
chosen to represent the banks, and I
insisted that the control of the system
was a governing function to be exer-
cised alone by the Government of the
United States. About this feature I
felt great anxiety, because a power-
ful impression had been created that
the banks of the coimtry would not
enter a Govemment^ontroUed sys-
tem, would not take stock in the
reserve banks, and would not put
their reserves in the reserve banks
unless they could control the Federal
Reserve Board.
Their representations with regard
to this had made a serious impression
on Mr. Glass and on others in au-
thority.
Mr. Glass and myself discussed the
matter very freely and fully, but
could not reach an agreement. As
[741
THE FEDERAL RESERVE ACT
far as he felt it safe to go was to have
a Federal Reserve Board of seven,
four members of which were to be
chosen by the Government and three
by the banks.
Upon this vital difference we de-
termined to appeal to the President.
We had a hearing one night at the
White House, in the Cabinet Room,
Mr. Glass urging his view and I
pressing the proposal that the Gov-
ernment should control the appoint-
ment of every member of this Board.
After a discussion of two hours, ap-
proximately, the President coincided
with my contention that the Govern-
ment shoidd control every member of
the Board on the ground that it was
the function of the Government to super-
vise this system and no individual^
however respectable, should be on this
Board representing private interests.
L75]
THE FEDERAL RESERVE ACT
Secretary McAdoo was present at
tliis interview and agreed with the
view which I presented.
When, shortly afterwards, it be*
came apparent that the banks would
not be able to refuse to enter the
system because of this provision, Mr*
Glass gave it a very cordial support,^
and when we introduced a bill iden-
tical in terms in the Senate and in
the House this Government control
was provided for (S. 2639. H. R-
6454).
I had printed for the use of the
Senate explanatory notes and in con-
nection with the section providing
for the Federal Reserve Board I
answered the objection of the Amer-
ican Banking Association to Govern-
ment control. I pointed out that the
directors of the Reichsbank of Ger-
many were appointed by the Govem-
176]
THE FEDERAL RESERVE ACT
ment and not by the stockholders of
the bank, and that the Bank of
France had its managers, governors,
and sub-governors appointed by the
Government of France.
The Glass draft. Section 21, fol-
lowed the Monetary Conmiission
Bill and provided that all moneys of
the general fund of the Treasury
should, after six months, be deposited
in the National Reserve banks and
disbiu*sed through such banks.
This I was unwilling to agree to,
believing that the Government
should retain complete control of
its receipts and disbiu-sements as a
further check on the reserve banks
by the Government.
On this point I received valuable
suggestions from Hon. Geo. H. Shib-
ly, who briefed the case for me.
The Reserve Act preserved the in-
[77]
THE FEDERAL RESERVE ACT
dependence of the Treasury in ac-
cordance with my contention.
Section 23 of the original proposal
^ by Mr. Glass authorized the National
Reserve banks to receive from the
Federal Reserve Board Federal Re-
serve notes, but these notes were to
be the bank notes of the Federal Re-
serve banks as in the Monetary Com-
mission Bill, and not the notes of the
United States Government.
I objected to this provision, insist-
ing that the notes should be United
States Treasury notes and treated as
such, for the reason that in this way
the United States Government would
be able to control these notes and the
banks would not be able to control
them, and Senate Bill 2639, and
House Bill 6454, introduced June 26,
1913, by Mr. Glass and myself, made
such notes the obligations of the
[78]
THE FEDERAL RESERVE ACT
United States, to be issued at the dis-
cretion of the Federal Reserve Board
solely for the purpose of making ad-
vances to Federal Reserve banks
(Section 17).
On this point I had the active as-
sistance of Hon. W. J. Bryan, Secre-
tary of State.
Between June and September
many discussions took place with re-
gard to this bill. Finally, on Au-
gust 29, 1913, Mr. Glass reintroduced
the measiu-e of H. R. 7837, and re-
ported it September 9, 1913, and it
passed the House September 18th.
On the 2d of September, 1913, an-
ticipating the passage by the House
of this Bill, I opened the hearings in
the Senate upon H. R. 7837, before
the Committee on Banking and Cur-
rency, so that the Bill if amended
would be amended as the matter of
[79]
THE FEDERAL RESERVE ACT
the House Bill, it being the same as
Senate 3099, which I had introduced
on September 9, 1913, and thus sev-
eral weeks' time saved in its parlia-
mentary management.
It resulted in a substitute bill
which after conference became The
Federal Reserve Act.
The hearings on this bill before the
Senate Committee filled three large
volumes of 3,259 pages, and were not
concluded until October 27, 1913.
The Committee made very resolute
efforts to ascertain as fully as possible
the views of bankers and business
men with regard to this bill.
The most distinguished bankers,
business men and financiers in the
coxmtry gave the Committee their
views, some of which were very use-
ful in refining the Bill.
I spent days in New York discuss-
[80]
THE FEDERAL RESERVE ACT
ing this measure with leading bank-
ers in order to be thoroughly assured
of their point of view and not to omit
any suggestions of value or to insert
in the bill any provisions which
would be injiu-ious either to the banks
or to our business people, but, as I
explained to them, I was considering
the matter as a public servant from
the standpoint of the interests of the
people of the United States, of the
manuf actiu'er and merchant and pro-
ducer and consimier, and not from
the standpoint merely of the banker.
On one occasion I spent the entire
day from nine o'clock in the morning
imtil nine o'clock at night talking to
the Legislative Committee of the
American Bankers' Association in
New York City.
I recall spending seven consecutive
hours discussing with Mr. Paul War-
[81]
THE FEDERAL RESERVE ACT
burg the question of whether the Re-
serve notes should be the notes of the
United States Government or bank
notes, he taking the position that
they should be notes of the Federal
Reserve banks and not United States
Treasury notes, he contending that
these notes would be the obligations
of the United States and would
weaken the credit of the United
States when the United States came
to borrow money from the banks or
from the people. I took the position
that the currency of the coimtry
ought to have behind it the taxing
power of the nation, that the United
States should control the currency,
and that private persons should not
control the currency, and that the
Treasury notes would mobilize cap-
ital so that it would be easier for the
Government to negotiate its loans
[821
THE FEDERAL RESERVE ACT
with such notes operating as a me-
dium for transfer of credits conven-
iently through the banks which would
be stabilized by this system.
Mr. Warbiu^g supported the prin-
cipal proposals of the Aldrich Central
Bank plan and opposed those of the
Federal Reserve Act (North Amer.
Rev., Oct., 1913, p. 527).
On December 13, 1913, Senator
Root proposed to amend Section 16
and make the Federal Reserve notes
"bank notes," and he denounced the
Federal Reserve notes because they
were the notes of the United States
Government, and said that the Act
**Is authority for the increase, practica]ly»
of what we call greenbacks,"
and urged that the Federal Reserve
notes were unsound and extremely
dangerous.
(881
THE FEDERAL RESERVE ACT
He contended that it meant not
elasticity, but uncontrolled expansion^
and said,
"It provides a currency which may be
increased, always increased, but not a cur-
rency for which the Bill contains any pro-
vision compelling reduction."
I pointed out on December 15,
1913, in my reply to Mr. Root {Cong.
Rec.y 899) that these notes could not
expand or remain expanded beyond
the requirements of oiu* commerce,
because, unless a bank needed cur-
rency, it would not call for these
notes, and as soon as the need for
currency was past the bank would
return the currency to the Reserve
Bank and the Reserve Bank would
return such currency to the Federal
Reserve agents. The automatic re-
demption of these notes is expressly
provided for in the Act. The ex-
[84]
THE FEDERAL RESERVE ACT
tent of this issue was absolutely in
the control of the authorities of the
United States Government, and the
fact that these notes were available
everywhere has enabled the people of
the United States to meet the present
demands of the Government of the
United States(1918) for gigantic bond
issues and enormous taxes required
in the greatest war of all history.
That these notes should not be dis-
credited as unsound I made clear at
that time by pointing out the various
safeguards to these notes and their
vaUdity and that the following se-
curities were* behind these notes:
First, A short-time promise-to-pay
of a business man in good standing,
based on commodities and for which
his entire fortune was responsible.
Second, The endorsement of a
member bank in good standing.
[851
THE FEDERAL RESERVE ACT
Third, The stock of such bank in
the Federal Resersre bank.
Fourth, The reserve balance of
such member bank in the Reserve
bank.
Fifth, The double liability of stock-
holders of the member bank endors-
ing the note.
Sixth, The capital and surplus of
the Federal Reserve bank obtaining
the note.
Seventh, A minimum gold reserve
of forty per cent, behind such notes.
Eighth, The liability of member
Danks for the obligation of its own
Federal Reserve banks.
Ninth, The double liability of
stockholders of all member banks.
Tenth, The mutual liability of all
Federal Reserve banks for the debts
of one another.
Eleventh, The taxing power of the
[86]
THE FEDERAL RESERVE ACT
people of the United States to meet
the obligations of the United States.
No such line of securities was ever
provided for any note issue in the
history of the world. These notes
have not expanded beyond the actual
requirements of commerce, and the
expansion is absolutely within the
control of the Government of the
United States.
The present assets of these banks
exceed five thousand million dollars.
The Federal Reserve notes in circu-
lation amount to $2,562,517,000, se-
cured by $1,146,646,000 in gold held
jointly by the Federal Reserve banks
and Federal Reserve agents, and
$2,116,238,000 in commercial paper
not including the other assets of the
Federal Reserve banks. In addition,
the Federal Reserve Board holds a
gold settlement fund of $433,885,000
[871
THE FEDERAL RESERVE ACT
belonging to the Federal Reserve
banks. (November 15, 1918.) Total
gold reserves, $2,056,777,000.
In the October, 1913, North Amer-
ican Review^ p. 567, 1 said of the pro-
posed system, "It will give the
United States the most gigantic and
masterful system of the world.'* The
stress of the great European war has
demonstrated the correctness of this
prophecy.
A serious contention over this Act
turned upon the question :
1. Should there be a central bank.^
I voiced the opinion of those who
desired the banks to be distributed
throughout the United States in dis-
tricts independent of one another, but
joined together so as to be co-opera-
tive without the dominance of one
by the other. Twelve banks were
established.
[881
THE FEDERAL RESERVE ACT
i. Another vital issue was who
should control this system — the
banks or the people of the United
States? I steadily insisted that the
control of the banking system of the
United States was a governing func-
tion and should be controlled by the
representatives of the people of the
United States and should not be
controlled by private persons, what-
ever their respectability. The sys-
tem was put under Government con-
trol.
3. It was contended, as by Mr.
Warburg, that these notes should be
the notes of corporations instead of
notes of the United States. I firmly
insisted that these notes should be
the notes of the United States under
the control of the Government and
based on the taxing power, and that
when these were loaned to the banks
[80]
THE FEDERAL RESERVE ACT
they should be adequately secured by
gold in fixed ratio and by United
States bonds or commercial bills.
The Federal Reserve notes were
made Government notes.
4. Some wished one bank, or as
few as possible; others, from eight to
twelve.
In my own Committee I was con-
fronted with the most serious diver-
gences of opinion with regard to some
of these vital questions, and found it
desirable at last to take the bill before
the Democratic Conference. It was
there discussed for about three weeks,
in which I defended the points in the
bill for which I stood, finally receiv-
ing the approval of the Democratic
Conference and being sustained, as
far as I now recall, on every vital
point in the bill. It passed the Sen-
ate, was submitted to Conference,
[90]
THE FEDERAL RESERVE ACT
and in an acceptable form was re-
ported as a substitute for the House
Bill on December 19, 1913; was sub-
mitted to conference and became a
law, and received the approval of the
President on December 23, 1913,
"As a Christmas gift to the Amer-
ican people."
The changes of importance made
by the Senate in the bill, as it passed
the House, are shown in a special
print of December 1, 1913, in the
Senate of the United States.
The number of Federal Reserve
banks permissible was increased from
ten to twelve. The national banks
were required, and the state banks
and trust companies were permitted,
to become members. The - share-
holder of every Federal Reserve bank
was made responsible equally and
ratably, and not one for another,
[911
THE FEDERAL RESERVE ACT
for all contracts, debts and engage-
ments.
National banks failing to signify
their acceptance within sixty days
were forbidden to act as Reserve
agents, and those failing within a year
to become members were required to
surrender their charters. The iisual
charter rights were granted to the
Reserve banks. The six directors of
each Federal Reserve bank to be
chosen by the member banks were
required to be elected on a plan which
I framed by a preferential baUoty
which automatically coheres a ma-
jority of those voting on one ballot
and prevents the need of succeeding
elections to obtain a majority vote.
The three Government directors, in-
cluding the Federal Reserve agent,
are appointed by the Federal Reserve
Board.
THE FEDERAL RESERVE ACT
It was expressly provided in the
Act as amended that nothing in the
Act should be construed as taking
away any powers vested by law in the
Secretary of the Treasury which re-
late to the supervision, management,
and control of the Treasury Depart-
ment and Biu-eaus under such De-
partment.
This was thought necessary to pre-
vent a possibility of interference with
the functions of the Treasury. The
Comptroller of the Ciu'rency was put
in charge of all Federal Reserve notes.
The reserves of the member banks
were by the Act and the amendments
of June, 1917, subjected to a gradual
change, so that after three years the
reserves in country districts were put
at seven per cent of its demand de-
posits and three per cent of its time
deposits. In a reserve city, at ten
[981
THE FEDERAL RESERVE ACT
per cent of its demand deposits and
three per cent of its time deposits.
In central reserve cities, at thirteen
per cent of its demand deposits and
three per cent of its time deposits,
to be carried with the Federal Re-
jserve banks, leaving the member
banks at liberty to carry such addi-
tional reserves as they may see fit.
Previously to the passage of the
Reserve Act a large part of the so-
called reserves in country banks and
in reserve cities were not available in
actual cash, but were held as open
accounts in city banks with other
reserve agents, and were not avail-
able in times of stringency.
An important proposed amend-
ment in Section 13 was to authorize
a Reserve bank to discount accept-
ances based on domestic shipment
x>i goods, as well as imports and ex-
194]
THE FEDERAL RESERVE ACT
ports up to one-half of the paid-up
capital stock and surplus of the bank
for which the rediscounts were made,
and to authorize any national bank to
accept drafts or bills of exchange
drawn upon it growing out of do-
mestic shipments of goods having not
more than six months' sight to run*
This provision was at that time, how-
ever, disapproved by the Secretary
of the Treasury, and the House Com-
mittee rejected it in conference. I
was much disappointed by this defeat
of domestic acceptances.
At a later date, September 7, 1916,
it was inserted in the Federal Reserve
Act, so that now national banks can
issue acceptances on domestic ship-
ments.
At the time of the passage of the
Federal Reserve Act the Secretary of
the Treasury disapproved of permit-
[95]
THE FEDERAL RESERVE ACT
ting the Federal Reserve banks to
exchange Federal Resersre notes for
gold, but under the provision that
a Federal Reserve bank may at any
time reduce its liability for out-
standing Federal Reserve notes by
depositing gold with the Federal
Resersre agent, the banks did accom-
plish this in fact by exchanging the
Federal Reserve notes for gold and
depositing the gold with the Federal
Reserve agents, which had the effect
of placing to their credit with the
Federal Reserve agent gold against
Federal Reserve notes emitted
through them.
Afterwards this was changed so
that the Federal Resersre banks were
permitted directly to exchange Fed-
eral Reserve notes for gold, and in
this way they have added hundreds
of millions of dollars to the gold avail-
[96]
THE FEDERAL RESERVE ACT
able behind the Federal Reserve
notes. I strongly stood for this gold
concentration in the Reserve Bank
System.
When the Federal Reserve Act
was signed I was given a copy of
the Act on vellum, in duplicate,
with the signatures of the Govern-
ment oflScials participating in the Act.
The President presented me with
one of the gold pens with which he
signed the Act, and wrote me the
following letter :
"The White House
" December es, 191S.
«
Hon. Robert L Owen,
United States Senate,
Washington, D. C.
" My dear Senator :
"Now that the fight has oome to a suc-
cessful issue, may I not extend to you my
[97]
THE FEDERAL RESERVE ACT
most sincere and heartfelt congratulations,
and also tell you how sincerely I admire the
way in which you have conducted a very
difficult and trying piece of business? The
whole country owes you a debt of gratitude
and admiration. It has been a pleasure to
be associated with you in so great a piece of
constructive legislation.
"Cordially and sincerely yours,
"WooDROW Wilson.**
The main principles of the Federal
Reserve Act are (1) the issuance
of elastic currency. Treasury notes,
supported by a large gold reserve,
and by sound commercial credits and
banking credits; (2) issued and con-
trolled by the Government, (3) easily
available to banks and to business
men, (4) under an interest charge to
prevent inflation by compelling con-
traction, (5) distributing bank re-
serves in twelve banks to serve com-
merce instead of concentrating them
[98]
THE FEDERAL RESERVE ACT
in New York to serve the Stock Ex-
change.
This in eflfect puts behind the indi-
vidual credit of the farmer, merchant^
manufacturer, shipper, and business
man the credit of the United States,
and furnishes him with elastic cur-
rency whose vaKdity cannot be ques-
tioned, in exchange for his own notes,
enabling him to meet his current ob-
ligations without diflSculty and pro-
viding an ever-present supply of
sound currency for business needs.
It gives assurance to the business
men of the country that they never
need fear a currency famine.
It assures them absolutely against
the danger of financial panic, due to
hoarding of currency or sudden de-
nial of legitimate credit.
It does not promise them protec-
tion against waste, improvidence, or
[99]
THE FEDERAL RESERVE ACT
carelessness in conducting business;
it does not protect them against over-
production or under-consumption; it
does not give complete protection
against industrial depression, which
may be due to these causes or to other
causes. The protection of the country
against industrial depressions is very
largely safeguarded by this Act, but
other steps by Government are es-
sential if industrial depression in
the future is to be entirely avoided.
This is another story — ^the story
of reconstruction, of stabilizing in-
dustry and commerce by added safe-
guards and the regulated constant
employment of labor.
The management of the Federal
Reserve banks by the six directors
elected by the member banks and the
three directors chosen by thfe Govern-
mentally controlled Federal Reserve
[100]
THE FEDERAL RESERVE ACT
Board has proven satisfactory to the
Government and to the country.
The refinements of the Federal Re-
serve Act were brought about by the
co-operation of a great many able
men who participated in the delib-
erations whose names and evidence
will be found in the hearings of the
two Conunittees. After Mr. Glass
and myself introduced the bill in
June, 1913, it received altogether
over eight hundred amendments,
nearly all of which related merely to
language and punctuation, the chang-
ing of words back and forth, and
matters of that character, which were
unimportant. Hon. Carter Glass
was entitled to very great credit for
his able and admirable work on this
measure. The members of the Com-
mittees on Banking and Currency of
the United States Senate and House
[101]
•s
THE FEDERAL RESERVE ACT
of Representatives gave it the most
assiduous attention from April to
December 23, 1913, and are entitled
to the highest measure of praise.
I am especially grateful to Hon.
Henry F. Hollis (N. H.), to Hon.
John Shafroth (Col.), and to Hon.
Atlee Pomerene (Ohio) of the Com-
mittee for their valuable services.
The bill had the sympathetic sup-
port and earnest co-operation of
President Wilson, of Secretary Bry-
an, of Secretary McAdoo, and Hon.
John Skelton Williams, the assistance
by suggestion of many prominent
bankers and business men, and from
time to time has been amended since,
as experience has shown how it may
be improved in its mechanism and
operation. I particularly appreci-
ated the valuable assistance of Hon.
Samuel Untermyer of New York,
[102]
THE FEDERAL RESERVE ACT
who gave me many useful sugges-
tions.
The expansion of the Federal Re-
serve banks under this Act has sur-
prised and delighted the country.
Except for this Act the United
States could not have adequately
financed this war, and the Govern-
ment of the United States would have
faced a serious panic at the beginning
of the war.
On the final passage of the Act in
the Senate, 47 Democratic Senators
voted for it, none against it, while 7
Republican Senators voted for it and
34 voted against it:
In the House of Representatives
248 Democrats voted for it and only
one against, while 38 Republican
members voted for it and 85 Repub-
lican Representatives voted against
it.
[103]
THE FEDERAL RESERVE ACT
Nearly all of the Republicans
voted for amendments suggested by
the Central Bank Bill of the Mone-
tary Commission, but every one of
these hostile amendments was de-
feated in the Senate and in the
House.
Hon. John Skelton Williams,
Comptroller of the Currency, in a
public statement recently said, in
regard to the Federal Reserve Act :
"Every business man, banker and
capitalist knows what it is and what
it has done. It is the best financial
system the world has ever seen. It
has made this Nation and Govern-
ment an impregnable financial force
and the strongest the mind of man
has devised. • • • That one meas-
ure WON THE WAR. It enabled our
finances to endure, without a quiver,
every shock and strain. It gave us
1104]
THE FEDERAL RESERVE ACT
the power to help our allies instantly
and without stint when their need
was sorest, with a help most needed."
The opportunity to take part in
framing this Act I have deeply ap-
preciated. I am glad to yield to the
suggestions of various friends and
dictate this short reminiscence.
I hope the little volume may prove
of value in making the simple prin-
ciples of the Reserve Act more clear:
1. A quick supply of elastic money ,
easily available;
i. Under Government control;
S. Secured by gold, commercial
bills and U. S. bonds;
4. Under an interest charge to
compel contraction and pre-
vent inflation.
RoBEBT L. Owen.
Nov. 16, 1918.
1104]
THE FEDERAL RESERVE ACT
APPENDIX A
STATEMENT OP COMBINED RESOURCES AND LIA-
BILITIES OP THE FEDERAL RESERVE BANKS AT
CLOSE OP BUSINESS, NOVEMBER z. 1918
Rbsoubcbs November is* i9z8
Gold in vault and in transit. . . . I375.527.000
Gold settlement fund* P. R*
Board 433>885.ooo
Gold with foreign agencies 5,829,000
Total gold held by banks. . 815.241.000
Gold with P. R. Agents. . z,ii6,S79.ooo
Gold redemption fund 74.957.ooo
Total gold reserves I2.056.777.000
Legal-tender notes, silver, etc. . • 53*039.000
Total reserves 12,109,816.000
Bills discounted: Secured by
Govt, war obligations ll,3S8,532,ooo
Bills discounted: All other.. . . . 439,276.000
Bills bought in open market. . . 377.877.ooo
Total bills on hand |a,i75.685,ooo
U. S. Government long - term
securities 39,478,000
U. S. Government short - term
securities 93»449.ooo
All other earning assets 28,000
Total raming assets 3.298,640,000
Uncollected items (deduct from
gross deposits) 7i7.785.ooo
5% Redemption fund against
P. R. bank notes 4,008,000
All other resources 18,169,000
Tclal Resources fs. 148*418,000
[109]
THE FEDERAL BESERVE ACT
Liabilities
Capital paid in $79,903,000
Surplus 1.134,000
Government deposits f 346,401,000
Due to members — ^Reserve acct. 1,449,949,000
Collection items 573.737,000
Other deposits, including foreign
Government credits 113,385.000
Total gross deposits. $3,383,463,000
P. R. notes in actual circulation 3,563,517,000
P. R. bank notes in circulation,
—net liability 72,930,000
All other liabiUties 48,473,000
Total Liabilities 15,148,418,000
Ratio of total reserves to net de-
posit and P. R. note liabili-
ties combined 49.9%
Ratio of gold reserves to P. R.
notes in actual circulation af-
ter setting aside 35% against
net deposit liabilities 59.6%
THE END
1107]
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